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Underquoting a property's value
 Attending an auction in the next few months? Well do not be completely surprised or annoyed if you encounter some form of underquoting, for although there has been wide spread media coverage of its frustrating knack for pushing home prices beyond the reach of some buyers, it is quite ironically often an essential component in a successful auction.
Once a vendor has decided to sell a property, it becomes their real estate agent’s responsibility to secure for them the highest possible price. Obviously, this means the agent needs to stir up intense competition on auction day to give the property the greatest chance of meeting pre-determined market levels.
Bidders will generally arrive at an auction with reasonably inflexible spending limits. Some will be closer to advertised price while others will extend beyond it, occasionally by large amounts. As they compete to their respective limits, these bidders serve to ramp up the intensity of the overall bidding process, allowing it to become much more competitive than it would have otherwise been.
When the sale price finally spirals out of their range, many of these underbidders consider their contribution to the auction unimportant when they have actually played an integral part in elevating and determining the final sale price. So although it can be incredibly frustrating to watch a home move beyond your limits, the system works most effectively when there are at least a few hapless souls priced out of the end sale.
So then, advertised sale prices must be viewed as what they effectively are, guides designed to give a general estimate of the expected sale price and not definitive predictors that precisely pinpoint the final sale price. A lot of prospective buyers understandably misinterpret this fact, that the advertised price is generally little more than a marketing tool used by the agent to drum up interest in the auction for the benefit of the vendor.
Another point worth considering is unlike a private sale which functions from a set but flexible price, negotiable with the agent, an auction places the responsibility for determining a property’s value back onto the buyer in the hope that market forces will designate a higher value than would be possible with a straight sale. This is the reason most auctions take place in well-known popular suburbs, demand outstrips supply and properties exceed even the most generous of initial estimates.
Buyers are currently protected from underquoting under the federal Trade Practises Act and associated acts in each State and Territory, but many are concerned the laws don’t go far enough to have any effective power. When the Victorian State Government passed down amendments to its Fair Trading Act in 2003 with the specific purpose of stamping out underquoting, few thought Consumer Affairs Victoria would struggle to locate and prosecute the rouge elements in the industry. But since then, not one agent has been prosecuted under the law, drawing criticism from irritated buyers.
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